1. What is Cost Basis?

Cost Basis represents the original value of an asset for tax purposes, adjusted for stock splits, dividends, and return of capital distributions. It is used to calculate capital gains or losses when the asset is sold.

2. How Does the Calculator Work?

The calculator uses the cost basis formula:

Where:

• \( Purchase\ Price \) — Price per share when purchased (currency)
• \( Shares \) — Number of shares purchased (count)
• \( Fees \) — Transaction fees and commissions (currency)

Explanation: This calculation gives you the per-share adjusted basis, which includes all costs associated with acquiring the investment.

3. Importance of Cost Basis Calculation

Details: Accurate cost basis calculation is crucial for determining capital gains taxes, making informed investment decisions, and maintaining proper investment records for tax reporting.

4. Using the Calculator

Tips: Enter purchase price in currency, number of shares as whole numbers, and any transaction fees in currency. All values must be valid (purchase price > 0, shares ≥ 1, fees ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: Why is cost basis important for investors?
A: Cost basis determines your taxable gain or loss when you sell an investment, directly impacting your tax liability.

Q2: What types of fees should be included?
A: Include all transaction costs such as brokerage commissions, trading fees, and any other acquisition-related expenses.

Q3: How does cost basis affect capital gains?
A: Capital gain = Selling price - Cost basis. A higher cost basis results in lower taxable gains.

Q4: What if I purchased shares at different times?
A: For multiple purchases, you'll need to calculate cost basis separately for each lot or use specific identification, FIFO, or average cost methods.

Q5: Are dividends included in cost basis?
A: Reinvested dividends increase your cost basis, while cash dividends do not affect the original purchase cost basis.